Legal Definitions - secondary insurer

A secondary insurer is an insurance company that provides coverage for losses only after the limits of another, primary insurance policy have been fully paid out. It acts as a backup, or "excess," layer of protection, stepping in when the initial coverage is exhausted. The secondary insurer's responsibility begins only after the primary insurer has met its maximum obligation.

• Example 1: Personal Umbrella Policy

  Imagine a driver causes a severe multi-car accident, resulting in $1.5 million in damages and medical bills. The driver's standard auto insurance policy (the primary policy) has a liability limit of $500,000. However, the driver also wisely purchased a personal umbrella insurance policy with a $2 million limit.

  In this scenario, the standard auto insurance company acts as the primary insurer, paying the first $500,000 of the damages. Once that limit is reached, the umbrella insurance company (the secondary insurer) would then become responsible for covering the remaining $1 million in damages, up to its own policy limit, protecting the driver from significant out-of-pocket expenses.

• Example 2: Health Insurance Coordination of Benefits

  Consider an individual who has health insurance through their own employer and is also covered as a dependent under their spouse's health insurance plan. They incur $10,000 in medical expenses. Through a process called "coordination of benefits," one plan is designated as primary and the other as secondary.

  If the individual's own employer-sponsored health plan is the primary insurer, it would pay its portion first, perhaps $8,000. The spouse's health insurance plan then acts as the secondary insurer. It would review the remaining balance and pay any eligible amounts that were not covered by the primary plan, according to its own terms, potentially reducing the individual's out-of-pocket costs significantly.

• Example 3: Commercial Excess Liability

  A manufacturing company faces a major lawsuit after a defective product causes widespread property damage and injuries, leading to $10 million in claims. The company's standard commercial general liability insurance policy (the primary policy) has a limit of $5 million per occurrence.

  The general commercial liability insurer would pay out its maximum of $5 million towards the claim. After that amount is exhausted, the company's excess liability insurer (the secondary insurer) would then become responsible for covering the remaining $5 million of the damages, up to its policy limit, thereby protecting the manufacturing company from having to pay that substantial amount directly.